A2.2.
The National Loans Fund
The National Loans Fund (NLF), in collaboration with the Debt Management Office, undertakes
borrowing on behalf of the Consolidated Fund and forwards to the Consolidated Fund the funds needed to
balance its account each day (Figure A3).
Established in 1968 in order to separate borrowing and lending activities from the Consolidated Fund, the
NLF is run by HM Treasury and has its own bank account at the Bank of England. The NLF funds the
deficit in various ways:
1. Savings deposited in National Savings and Investments (NS&I) accounts (which, excluding the
ordinary account, are liabilities of the National Loans Fund).
2. Borrowing from the money markets through the issuing of sterling denominated government bonds,
also known as gilt-edged securities or gilts and Treasury bills. These are sold to the Debt
Management Account (DMA) and from there the Debt Management Office (DMO) sells them into the
market (Figure A3).
3. Transferring any surplus unused balances from other government bank accounts.
4. The NLF also receives all the profits from the Issues Department of the Bank of England.10 The
Issues Department is responsible for supplying banknotes. This seigniorage revenue is, of course, a
profitable activity, as the cost of producing a banknote is a small fraction of its face value (see
Section 4.4, Box 8)
As well as making up any shortfall in the Consolidated Fund, the NLF provides finance to the DMA and
the Exchange Equalisation Account (EEA) (Appendix 3). The NLF also makes loans to public sector
bodies as well as providing finance to other government organisations which provide loans, such as the
Public Works Loans Board that gives loans to local authorities.
Any national borrowing incurs interest charges that compound over time. Thus an important NLF outgoing
is the paying of interest on gilts and on NS&I accounts. When the interest the NLF receives on its loans is
less than the interest which it has to pay out (which is usually the case), proceeds from issuing government
bonds usually make up the difference.